Seventh Circuit Holds Pharmaceutical Reps Exempt Under Administrative Exemption

This week, the Seventh Circuit issued a decision in Schaffer-Larose v. Eli Lily & Company, in which it held that pharmaceutical reps are exempt under the FLSA's administrative exemption. This is separate from the issue pending before the United States Supreme Court in Christopher v. SmithKline Beecham of whether these types of employees are exempt under the outside sales exemption. This decision is contrary to the Second Circuit's 2010 Novartis decision and could, in theory, create a separate Supreme Court decision to address the discrete exemption issue.

As discussed below, the most notable aspects of the opinion are that it (1) takes a narrow view of the (non-exempt) production side of the "administrative/production" dichotomy, (2) rejects the interpretation that the DOL advanced in amicus briefing in the Novartis case, implicitly finding the DOL brief was entitled to minimal deference, and (3) gives a broad interpretation of what qualifies as "discretion and independent judgment" for purposes of the exemption.

The Facts

Before analyzing the case, for those who have not read any of the pharmaceutical rep cases, some background facts are necessary. Pharmaceutical reps are non-physicians who receive sales training and training on the pharmaceutical products their employers produce. They visit doctors within a geographic territory and try to persuade the doctors to prescribe their employer's medication to patients who could benefit from the drugs.

While there are extensive regulatory limits on what they can say, they are free to decide how much time they'll spend with each doctor, how they will approach doctor's to demonstrate the benefits of a particular drug, and how to respond to any questions and concerns the doctor may have. They also are a conduit back to the employer of complaints the doctors raise about the drugs.

They get paid a base salary plus incentive pay based on the volume of the prescription drug sales within their geographic territory. Most of the litigation in this area has focused on whether their duties qualify as "sales" work for the outside sales exemption. If it doesn't, then the alternative argument is that they engage in "promotion" or "marketing" work that qualifies for the administrative exemption.

The Analysis

With that in mind, here are three interesting takeaways from the case.

(1) Whether the work qualified as administrative rather than production work.

The Seventh Circuit began by looking to the language of...